The leaders’ meeting is a crucial stage in the European Union crisis talks, as the politicians finalise decisions on how to support vulnerable countries and lead the eurozone out of its financial crisis.

The prospects for the talks improved this morning when the German parliament approved a key motion regarding the bailout, giving Chancellor Angela Merkel free rein in the Europe-wide discussions in Brussels later.

As the eurozone’s strongest economy, Germany‘s role in the talks is key. And Chancellor Merkel was under no illusions about how important it was to try to solve the crisis for the future of both Germany and Europe.

No one should think a further half century of peace and prosperity is assured. It isn’t..if the euro fails, Europe will fail. Chancellor Angela Merkel

“What is good for Europe is good for Germany, half a century of peace and prosperity in Germany and Europe testify to that,” she said.

She added: “No one should think a further half century of peace and prosperity is assured. It isn’t. And that’s why I say if the euro fails, Europe will fail, and that mustn’t happen.”

David Cameron said that “some good progress” had been made by EU leaders at the summit.

The Prime Minister, joined by the other 26 EU leaders, said headway had been made on moves to recapitalise banks which had “not been watered down” and was now agreed as part of a three-pronged strategy.

“We have made some good progress tonight,” he said.

Bank recapitalisation would only go ahead when all parts of the plan were agreed, he said.

Another key player is Italian Prime Minister Silvio Berlusconi, who is trying to push through austerity plans in his country to ensure it is eligible for the EU’s financial protection measures. A rumour he may be forced to resign over the austerity plan has been denied.

Hurdles

EU leaders need to agree on a plan to raise more than 100bn euros to insulate banks against further economic shocks, as well as a plan to boost the European Stability Facility (EFSF) – Europe’s main bailout fund – with more money, via leveraging. Finally, a decision is still to be made about Greece, and the demand that private investors, mainly banks, absorb a writedown of at least 50 per cent of their loans to Greece.

There are concerns that the talks will not go far enough to solve spiralling fears that the debt crisis will hit the wider global economy.

In part, these are due to the cancellation of one of the meetings due to take place, of the finance ministers. The authorities played down the cancellation, saying it was procedural, and stressing the meeting of the leaders was more important anyway. All 27 leaders of countries in the European Union will meet first, before a later meeting between the 17 leaders of eurozone countries.

Channel 4 News Economics Editor Faisal Islam, in Brussels, said: “For now, no finance ministers means no numbers. No numbers means no deal worthy of the word. And no deal means no hope of killing off this crisis.”

‘Flawed’ solution

Economist Jonathan Portes, director of the National Institute of Economic and Social Research, told Channel 4 News that even if some kind of deal is agreed, serious problems remain because they do not address the real issue.

“The problem here is that they are asking the wrong questions so they are likely to get the wrong answer,” he said.

He believes that, rather than using the bailout fund (the European Financial Stability Fund) to fix the crisis, the politicians should turn to the European Central Bank.

“Unlike the bailout fund, financed by national governments, the ECB can put up unlimited money. It could say we will stand by governments that are solvent and behave properly to an unlimited amount. The reason why is because if it absolutely has to, it can simply print money – and the fact of it saying this would make it much less likely to happen.”

He admitted there are issues with this option – not least that the ECB does not want it to appear as if governments can be let off the hook – but maintained: “The right answer is for the ECB to step in and say we are the lender of last resort, and if this is done credibly and clearly, this would go the furthest to dealing with the eurozone crisis.”